provided valuable institutional detail, and for this we are deeply indebted. In March 1998, the Mexican Stock Exchange solicited our paper to give us their comments, but no comments have been received so far. Any remaining errors in this paper are our own.
The dynamic effect of idiosyncratic risk on market returns has been debated recently. Previous studies examine the effect based on a regression of excess returns on one-lagged volatility. We claim this approach provides only a partial, limited picture of the dynamic effect of idiosyncratic risk that tends to be persistent over time. By correcting for the… (More)
We examine whether the observed negative relations between stock returns and inflation and between housing returns and inflation can be explained by the inflation illusion hypothesis. We identify the mispricing component in the asset prices (i.e., stock prices and housing prices) based on present value models, linear and loglinear models, and then… (More)